A compact sports car to rival Porsche's Boxster is very much on the want list of Jaguar's senior management. The challenge is how to deliver it at a reasonable investment and still make a profit.

Initial rumors centered on the concept of a cut-down XK platform, but those seem to be cooling: "The problem with a front-engine car with, say, a V-6, is that you end up with a high bonnet [hood] line, further aggravated by pedestrian impact requirements, that increases the height of the windscreen and the occupant's H-point [hip-point]," one insider explained, adding, "but if the engine is in the middle, you can lower the height of the car overall." Above, our artist's interpretation of what a mid-engine XE could look like.

A timescale is far too early to be talked about just yet, but even if the XE was given the go-ahead by Jaguar management today, the earliest it might appear would be 2012 at a push.

Jaguar's whole product strategy is under review: "There's a role for a smaller Jaguar to play," we were told, specifically to replace the unloved X-Type. "Remember the RD6 concept? Or how about a modern take on the Reliant Scimitar sports hatch," our source teased us.

Nearer to reality is a smaller diesel (around 2.0-2.2-liters) for the XF, which would give Jaguar a real rival in the European executive sedan market that's currently dominated by Germany's big three.